TSX: SHLE
CALGARY,
July 31, 2018 /CNW/ - Source
Energy Services Ltd. ("Source" or the "Company") is pleased to
announce its 2018 second quarter results.
HIGHLIGHTS
Source achieved the following results in the second
quarter of 2018:
- Record sand sales volumes of 813,995 MT, up 96% compared
to the same period in 2017;
- Record Net Income of $9.2
million or $0.15 per
share;
- Gross Margin of $24.3
million and Adjusted Gross Margin(1) of
$32.0 million;
- Record Adjusted EBITDA(1) of $24.7 million;
- Adjusted Gross Margin(1) per MT of
$39.32, which includes a mine gate
sales impact of $2.65 per
MT;
- Delivered 87% of sand sales volumes into the Western
Canadian Sedimentary Basin (the "WCSB");
- Deployed a fourth Sahara unit in April 2018; and
- Successfully increased liquidity through the issuance of
an additional $50.0 million of 10.5%
senior secured first lien notes due December
15, 2021 (the "Notes") combined with an increase of the
Credit Facilities from $70.0 million
to $88.0 million.
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Notes:
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(1)
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Adjusted EBITDA and
Adjusted Gross Margin (including on a per MT basis) are not defined
under IFRS, see "Non-IFRS Measures" below.
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Brad Thomson, Source's
President and CEO said, "The second quarter of 2018 proved to be a
very good quarter for us despite the general slow down in activity
in the WCSB caused by seasonal spring break-up. While the second
quarter normally sees a decline in oilfield activities in the WCSB,
the increase in proppant intensity and completions activities by
Source's customers allowed us to show substantial growth in sales
in the second quarter of 2018."
Mr. Thomson is also pleased to announce Source's intent to
implement a normal course issuer bid ("NCIB") to purchase
approximately 1% of the public float of Source's outstanding common
shares for cancellation through the Toronto Stock Exchange (the
"TSX") and other alternative Canadian securities trading platforms.
The implementation of the NCIB, the date on which it will commence
and the number of shares that Source will be permitted to purchase
for cancellation under the NCIB remains subject to TSX review and
approval. Source will announce the precise details of the NCIB upon
approval from the TSX.
BUSINESS OUTLOOK
As Source's first quarter of 2018 was significantly
impacted by supply chain interruptions caused by prolonged severe
winter weather, and the second quarter of 2018 was the WCSB's
seasonal spring break-up, Source is confident in seasonal growth in
activity levels in the WCSB for the remainder of this
year.
Commodity prices currently drive favorable economics for
operators in the liquids rich Montney and Duvernay areas of the WCSB. As these wells
have the highest amount of proppant placed per meter of completed
lateral ('proppant intensity') in the WCSB, strong activity in
these areas should drive demand for proppant in Canada. In addition to this Source continues
to see an increase in the average proppant intensity across the
WCSB.
With the addition of new customer contracts in the first
half of the year, Source has a strong order book for the remainder
of 2018 and will have additional opportunities to pursue spot
sales.
OVERVIEW OF RESULTS
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Three months ended June 30
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Six months ended June 30
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($000's, except MT and per unit
amounts)
|
2018
|
2017
|
|
2018
|
2017
|
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Sand Volumes (MT)(1)
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813,995
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414,286
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1,456,767
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834,297
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Sand
Revenue
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110,281
|
50,555
|
|
197,165
|
102,185
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Wellsite
Solutions
|
20,758
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16,629
|
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38,028
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27,164
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Terminal
Services
|
1,174
|
1,475
|
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2,396
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3,743
|
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Sales
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132,213
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68,659
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|
237,589
|
133,092
|
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Cost of
Sales
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100,206
|
55,420
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|
179,111
|
108,575
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Cost of Sales –
Depreciation and Depletion
|
7,694
|
2,810
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9,710
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5,368
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Cost of Sales
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107,900
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58,230
|
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188,821
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113,943
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Gross
Margin
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24,313
|
10,429
|
|
48,768
|
19,149
|
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Operating and General
and Administrative Expenses
|
7,641
|
5,718
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|
15,648
|
9,602
|
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Depreciation
|
2,951
|
1,540
|
|
5,570
|
2,807
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Income from operations
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13,721
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3,171
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27,550
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6,740
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Other expense(income):
|
|
|
|
|
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Loss (gain) on asset
disposal
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(8)
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(3)
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2,388
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(3)
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Finance
expense
|
4,928
|
9,409
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9,807
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18,888
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Gain on derivative
liability
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(1,787)
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(31)
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(1,411)
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(4,165)
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Share based
compensation expense
|
1,304
|
3,870
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|
2,209
|
3,870
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Other
income
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(49)
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(432)
|
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(248)
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(964)
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Management
fees
|
—
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—
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—
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417
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Foreign exchange loss
(gain)(2)
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(332)
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(157)
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(330)
|
524
|
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Total other
expense
|
4,056
|
12,656
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|
12,415
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18,567
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Income (loss) before
income taxes
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9,665
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(9,485)
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|
15,135
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(11,827)
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Current income tax
expense (recovery)
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(932)
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1,691
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—
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1,691
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Deferred income tax
expense (recovery)
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1,398
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(2,340)
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2,222
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(2,680)
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Net Income
(Loss)
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9,199
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(8,836)
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|
12,913
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(10,838)
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Net Income (Loss) per
share ($/share)
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0.15
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(0.24)
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0.20
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(0.30)
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Diluted Net Income
(Loss) per share ($/share)
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0.15
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(0.24)
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0.20
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(0.30)
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Adjusted
EBITDA(3)
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24,747
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8,959
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|
45,292
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16,204
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Sand Revenue
Sales/MT
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135.48
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122.03
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135.34
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122.48
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Gross
Margin/MT
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29.87
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25.17
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33.48
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22.95
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Adjusted Gross
Margin(3)
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32,007
|
13,239
|
|
58,478
|
24,517
|
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Adjusted Gross
Margin/MT(3)
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39.32
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31.96
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40.14
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29.39
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Notes:
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(1)
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One metric tonne
("MT") is approximately equal to 1.102 short tons.
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(2)
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The average Canadian
to US dollar exchange rate for the three and six months ended June
30, 2018 was $0.7745 and $0.7824, respectively, (2017 - $0.7435 and
$0.7495, respectively).
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(3)
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Adjusted EBITDA and
Adjusted Gross Margin, including per MT, are not defined under
IFRS. See "Non-IFRS Measures" below.
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For the second quarter of 2018, Adjusted EBITDA was
$24.7 million, which was $15.8 million higher than the $9.0 million of Adjusted EBITDA in the same
period in 2017 and Net Income was $9.2
million, which was $18.0
million higher than the $8.8
million Net Loss in the same period in 2017.
Sand volumes in the second quarter of 2018 increased by
399,709 MT, or 96%, compared to the volume of sand sold in the same
period in 2017. Source's sand revenue increased in the second
quarter of 2018 by $59.7 million, or
118%, compared to the second quarter of 2017. This increase in
revenue was attributable to the increase in sand sales volumes as
well as an 11% increase ($13.45 per
MT) in average realized sand price. In the second quarter of 2018,
Source's sand revenue increased by $23.4
million, or 27%, when compared to the first quarter of 2018,
primarily due to a 27% increase in sand volumes (171,222 MT) and a
minimal increase ($0.31 per MT) in
the average sales price. The increase in the average price was
primarily due to the positive impact of a weaker Canadian dollar on
US dollar denominated sales largely offset by an increase in the
number of mine gate sales in the second quarter of 2018.
During the second quarter of 2018, revenue from wellsite
solutions increased by $4.1 million,
compared with the second quarter of 2017 primarily due to increased
trucking activity associated with the increased sand sales volumes.
Wellsite solutions revenue also increased by $3.5 million in the second quarter of 2018,
compared with the first quarter of 2018, primarily due to increased
trucking activity associated with Source's increased sand sales
volumes, as well as the deployment of the fourth Sahara unit in
April 2018.
In the second quarter of 2018, Gross Margin and Adjusted
Gross Margin increased by $13.9
million and $18.8 million, or
$4.70 per MT and $7.36 per MT, respectively, when compared to the
second quarter of 2017 due to improved sand volumes and an increase
in average realized sand prices. Adjusted Gross Margin was
$39.32 per MT in the second quarter
of 2018 including a $2.65 per MT
impact from mine gate sales. Gross Margin in the second quarter of
2018 was relatively unchanged from the first quarter of 2018 and
Adjusted Gross Margin increased in the second quarter of 2018 from
the first quarter of 2018 by $5.5
million, primarily due to increased sand volumes.
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Three months ended June 30
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|
Six months ended June 30
|
|
($000's, except MT and per unit
amounts)
|
2018
|
2017
|
|
2018
|
2017
|
|
Gross
Margin
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$24,313
|
$10,429
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|
$48,768
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$19,149
|
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Cost of Sales –
depreciation and depletion
|
7,694
|
2,810
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|
9,710
|
5,368
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Adjusted Gross
Margin(1)
|
32,007
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13,239
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|
58,478
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24,517
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Gross
Margin/MT
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$29.87
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$25.17
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|
$33.48
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$22.95
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Adjusted Gross
Margin/MT(1)
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$39.32
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$31.96
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$40.14
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$29.39
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Percentage of Mine
Gate Sand Volumes
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13%
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9%
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11%
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7%
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Percentage of Sand
Volumes Sold in the WCSB
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87%
|
91%
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|
89%
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93%
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Sales Mix Impact of
Mine Gate Sales/MT
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$2.65
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$1.05
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$2.30
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$0.95
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Impact of Preferred
Acquisition Inventory Acquired at Fair Value/MT
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$—
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$—
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$1.30
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$—
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Notes:
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(1)
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Adjusted Gross Margin
(including on a per MT basis) is not defined under IFRS, see
"Non-IFRS Measures" below.
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SECOND QUARTER CONFERENCE CALL
A conference call to discuss Source's second quarter
financial results has been scheduled for 7:30 am MT (9:30 am
ET) on August 1, 2018, for
interested analysts, investors and media
representatives.
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The conference call
dial-in details are:
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Dial-In Numbers
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Participant
Passcode
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Toll-Free:
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1-888-231-8191
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8777288
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International:
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1-647-427-7450
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8777288
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The call will be
recorded and available for playback approximately 2 hours after the
meeting end time, until September 1, 2018, using the following
dial-in:
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Playback Number
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Passcode
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Toll-Free
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1-855-859-2056
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8777288
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ABOUT SOURCE ENERGY SERVICES
Source is a fully integrated producer, supplier and
distributer of high quality Northern White frac sand. Source
provides its customers with a full end-to-end solution supported by
its Wisconsin mines and processing
facilities, its unit train capable rail assets, its Western
Canadian terminal network and its "last mile" logistics
capabilities. In addition to its industry leading frac sand
transload terminal network and in-basin frac sand storage
capabilities, Source also provides storage and logistics services
for other bulk oil and gas well completion materials that aren't
produced by Source.
Source's full-service approach allows customers to rely on
its logistics capabilities to increase reliability of supply and to
ensure the timely delivery of their growing requirements for frac
sand and other bulk completion materials.
IMPORTANT INFORMATION
These results should be read in conjunction with each of
Source's unaudited condensed interim financial statements for the
three and six months ended June 30,
2018, and Source's audited consolidated financial statements
for the year ended December 31, 2017,
together with the accompanying notes (the "Financial Statements")
and its corresponding management's discussion and analysis for such
period (the "MD&A"). The Financial Statements and MD&A and
other information relating to Source, including the Annual
Information Form ("AIF"), is available under the Company's SEDAR
profile at www.sedar.com.
The Financial Statements and comparative statements have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as issued by the International Accounting
Standards Board ("IASB"). Unless otherwise stated, all amounts are
expressed in Canadian dollars.
NON-IFRS MEASURES
In this press release Source has used the terms Adjusted
Gross Margin and Adjusted EBITDA, including per MT, which do not
have standardized meanings prescribed by IFRS and Source's method
of calculating these measures may differ from the method used by
other entities and, accordingly, they may not be comparable to
similar measures presented by other companies. These financial
measures should not be considered as an alternative to, or more
meaningful than, net income (loss), Gross Margin and other measures
of financial performance as determined in accordance with IFRS. For
additional information regarding Non-IFRS measures, including their
use to management and investors and reconciliations to measures
recognized by IFRS, please refer to the MD&A, which is
available online at www.sedar.com
and through Source's website at
www.sourceenergyservices.com.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this press release
constitute forward-looking statements relating to, without
limitation, expectations, intentions, plans and beliefs, including
information as to the future events, results of operations and
Source's future performance (both operational and financial) and
business prospects. In certain cases, forward-looking statements
can be identified by the use of words such as "expects",
"estimates", "forecasts", "intends", "anticipates", "believes",
"plans", "seeks", "projects" or variations of such words and
phrases, or state that certain actions, events or results "may",
"should" or "will" be taken, occur or be achieved. Such
forward-looking statements reflect Source's beliefs, estimates and
opinions regarding its future growth, results of operations, future
performance (both operational and financial), and business
prospects and opportunities at the time such statements are made,
and, except as may be required by law, Source undertakes no
obligation to update forward-looking statements if these beliefs,
estimates and opinions or circumstances should change.
Forward-looking statements are necessarily based upon a number of
estimates and assumptions made by Source that are inherently
subject to significant business, economic, competitive, political
and social uncertainties and contingencies. Forward-looking
statements are not guarantees of future performance. In particular,
this press release contains forward-looking statements pertaining,
but not limited, to: outlook for operations and sales volumes
(including relating to orders and spot sales); industry activity
levels (including in the WCSB); rail service; the impact of
weather; expectations regarding increased demand for and sales
volumes of sand in 2018; the continued increase of sand sales
volumes and sand spot pricing in 2018; and increased sand
intensities for Canadian well completions.
By their nature, forward-looking statements involve
numerous current assumptions, known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of Source to differ materially from
those anticipated by Source and described in the forward-looking
statements
With respect to the forward-looking statements contained
in this press release, assumptions have been made regarding, among
other things: proppant market prices; future oil, natural gas and
natural gas liquids prices; future global economic and financial
conditions; future commodity prices, demand for oil and gas and the
product mix of such demand; levels of activity in the oil and gas
industry in the areas in which Source operates; the continued
availability of timely and safe transportation for Source's
products, including without limitation, rail accessibility; the
maintenance of Source's key customers and the financial strength of
its key customers; the maintenance of Source's significant
contracts or their replacement with new contracts on substantially
similar terms and that contractual counterparties will comply with
current contractual terms; operating costs; that the regulatory
environment in which Source operates will be maintained in the
manner currently anticipated by Source; future exchange and
interest rates; geological and engineering estimates in respect of
Source's resources; the recoverability of Source's resources; the
accuracy and veracity of information and projections sourced from
third parties respecting, among other things, future industry
conditions and product demand; demand for horizontal drilling and
hydraulic fracturing and the maintenance of current techniques and
procedures, particularly with respect to the use of proppants;
Source's ability to obtain qualified staff and equipment in a
timely and cost-efficient manner; the regulatory framework
governing royalties, taxes and environmental matters in the
jurisdictions in which Source conducts its business and any other
jurisdictions in which Source may conduct its business in the
future; future capital expenditures to be made by Source; future
sources of funding for Source's capital program; Source's future
debt levels; the impact of competition on Source; and Source's
ability to obtain financing on acceptable terms.
A number of factors, risks and uncertainties could cause
results to differ materially from those anticipated and described
herein including, among others: the effects of competition and
pricing pressures; risks inherent in key customer dependence;
effects of fluctuations in the price of proppants; risks related to
indebtedness and liquidity, including Source's leverage,
restrictive covenants in Source's debt instruments and Source's
capital requirements; risks related to interest rate fluctuations
and foreign exchange rate fluctuations; changes in general
economic, financial, market and business conditions in the markets
in which Source operates; changes in the technologies used to drill
for and produce oil and natural gas; Source's ability to obtain,
maintain and renew required permits, licenses and approvals from
regulatory authorities; the requirements of and potential changes
to applicable legislation, regulations and standards; the ability
of Source to comply with unexpected costs of government
regulations; liabilities resulting from Source's operations; the
results of litigation or regulatory proceedings that may be brought
against Source; the ability of Source to successfully bid on new
contracts and the loss of significant contracts; uninsured and
underinsured losses; risks related to the transportation of
Source's products, including potential rail line interruptions or a
reduction in rail car availability or the impact of weather; the
geographic and customer concentration of Source; the ability of
Source to retain and attract qualified management and staff in the
markets in which Source operates; labour disputes and work
stoppages and risks related to employee health and safety; general
risks associated with the oil and natural gas industry, loss of
markets, consumer and business spending and borrowing trends;
limited, unfavourable, or a lack of access to capital markets;
uncertainties inherent in estimating quantities of mineral
resources; sand processing problems; and the use and suitability of
Source's accounting estimates and judgments.
Although Source has attempted to identify important
factors that could cause actual actions, events or results to
differ materially from those described in its forward-looking
statements, there may be other factors, including those described
under the heading "Risk Factors" in the AIF, that cause actions,
events or results not to be as anticipated, estimated or intended.
There can be no assurance that forward-looking statements will
materialize or prove to be accurate, as actual results and future
events could differ materially from those anticipated in such
statements. The forward-looking statements contained in this press
release are expressly qualified by this cautionary statement.
Readers should not place undue reliance on forward-looking
statements. These statements speak only as of the date of this
press release. Except as may be required by law, Source expressly
disclaims any intention or obligation to revise or update any
forward-looking statements or information whether as a result of
new information, future events or otherwise.
SOURCE Source Energy Services